Taxing people’s preferences has social costs

In the USA, Oakland - California Mayor Jerry Brown has recommended the state solves its budget woes by taxing behaviours such as drinking and eating junk food. Because "sin" taxes are effective at raising revenue they become attractive options to governments when confronted by large budget shortfalls.

Radley Balko, a tax analyst for the Cato Institute, says that he's surprised at the honesty of Brown's approach, noting that most politicians usually say the reason they want to impose sin taxes is to stop unhealthy behaviour. Balko says that, as but one example, state and local governments have become addicted to cigarette tax revenue and would take a financial hit should few people smoke. Nonetheless, he says Brown dismisses some of the problems associated with sin taxes:

Steep tax hikes spur people to buy on the black market instead of retail stores, thus diverting funds from legitimate businesses to criminals and possibly, to terrorist organisations.

Taxes on alcohol are regressive because the poor spend a greater portion of their income on alcohol.

Social drinkers bear the brunt of alcohol taxes since problem alcoholics are unlikely to stop or reduce their consumption.

Some experts also offer caution against the widespread use of sin taxes on ethical grounds. Rev. Robert A. Sirico, president and co-founder of the Acton Institute, says that, "before we empower the government with what are, effectively pastoral responsibilities, we ought to consider the fundamental issues regarding the interplay between private morality and public policy."

While Brown's sin tax musings are "just an idea" for now, Gov. Arnold Schwarzenegger believes the state's problems are caused by overspending and not under-taxation.

Source: John Skorburg, Oakland Mayor Floats Sin Taxes on Junk Food and Drinking, Heartland Institute, February 1, 2004.

For text http://www.heartland.org/Article.cfm?artId=14343

For more on Sin Taxes http://www.ncpa.org/iss/tax/

FMF Policy Bulletin\20 April 2004